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COMMISSIONER OF INCOME TAX Vs. M/S ASSOCIATE TECHNO PLASTICS P. LTD.
January, 04th 2014
$~
*       IN THE HIGH COURT OF DELHI AT NEW DELHI


+                INCOME TAX APPEAL NO. 20/2000
                                          Reserved on: 1st August, 2013
                                Date of decision: 21st November, 2013
        COMMISSIONER OF INCOME TAX                 ..... Appellant
                             Through Mr. Abhishek Maratha, Sr. Standing
                             Counsel.

                             versus

        M/S ASSOCIATE TECHNO PLASTICS P. LTD.
                                            ..... Respondent
                     Through Nemo.

                 INCOME TAX APPEAL NO. 95/2002


        CIT                                         ..... Appellant
                             Through Mr. Kamal Sawhney, Sr. Standing
                             Counsel.

                             versus

        M/S HCL EMPLOYEES & INVEST. CO.LTD ..... Respondent
                     Through Mr. Ajay Vohra, Ms. Kavita Jha &
                     Mr. Vaibhav Kulkarn, Advocates.

        CORAM:
        HON'BLE MR. JUSTICE SANJIV KHANNA
        HON'BLE MR. JUSTICE SANJEEV SACHDEVA




ITA Nos. 20/2000 & 95/2002                                    Page 1 of 28
SANJIV KHANNA, J.:

        Appeal by the Revenue being ITA No. 95/2002, which pertains

to Assessment Year 1989-90, was admitted vide order dated 8th July,

2005 for determination of the following substantial question of law:-

                 "Whether ITAT was correct in deleting
                 the addition of Rs.2,39,86,572/- being the
                 difference between the sale price declared
                 by the assessee and the market price of the
                 shares quoted at the recognised stock
                 exchange?"

2.      ITA No. 20/2000 again by the Revenue relates to Assessment

Year 1989-90 and was admitted for hearing vide order dated 27th

August, 2001 for answering the following substantial question of law:-


                 " Whether the Tribunal was justified in
                 holding that Section 69B of the Income
                 Tax Act has no application to the facts of
                 the case?"

3.      The respondent in ITA No. 95/2002 is HCL Employees and

Investment Company Limited (HEICL), whereas the respondent in

ITA No. 20/2000 is Associated Techno Plastics Private Limited

(ATPPL). In ITA No. 95/2002, the order passed by the Income Tax

Appellate Tribunal is dated 15th October, 2001 and in ITA No. 20/2000

the order passed by the tribunal is dated 4th May, 1999. We have heard

the two ITAs together in view of the order dated 8 th July, 2005 passed

in ITA No. 95/2002. We record and notice that facts are inter-twined

ITA Nos. 20/2000 & 95/2002                                     Page 2 of 28
and the questions raised relate to a transaction(s) in which both the

assessees were involved or connected. At this stage, we also record

that no one has appeared for the respondent-ATPPL in ITA

No.20/2000, though it is apparent that they are aware of the present

proceedings and were earlier represented by a counsel.        However,

HEICL has been represented and have contested the present

proceedings.

4.      ATPPL, it is claimed, had purchased 77929 shares of HCL

Limited, which were sold by HEICL. These shares were purportedly

purchased at the price of Rs.6.02 per share though the market price on

the date of sale, i.e., 16th December, 1988 was Rs.41/- per share, being

the quoted price on the recognised stock exchange.

5.      HEICL had originally filed a return of income on 26th March,

1991 disclosing income of Rs.35,220/-. The return was processed

under Section 143(1)(a) of the Income Tax Act, 1961 (Act, for short)

and subsequently the said assessees involvement in question came to

the knowledge of the department and proceedings under Section 148 of

the Act were initiated. The Assessing Officer noticed that HEICL had

transferred 12,70,000 shares of HCL to 62 different persons at prices

varying between Rs.18.91 to Rs.6.02, between May, 1988 to

November, 1988. The Assessing Officer taking into consideration the

market price on different dates when the sale transactions were entered

ITA Nos. 20/2000 & 95/2002                                   Page 3 of 28
into and made an addition of Rs.2,39,86,572/- by bringing to tax the

difference between market price and the sale consideration as declared.

6.      HEICL did not succeed in the first appeal but has succeeded

before the tribunal. We shall subsequently refer to the order of the

tribunal.

7.      ATPPL for the Assessment year 1989-90 had filed its return of

income on 17th November, 1989, declaring income of Rs.10,28,136/-.

8.      In the regular assessment proceedings, it was noticed that

investments of ATPPL had increased from Rs.13,85,359/- to

Rs.61,71,068/-. On query, it was explained that assessee-ATPPL had

purchased 3,90,181 equity shares of HCL Limited for Rs.41,26,362/-,

from different persons by way of private arrangements and no share

broker was involved in the said transactions. The Assessing Officer

took notice of these transactions and brought to tax an amount of

Rs.26,48,017/- on account of difference between the sale consideration

paid by the assessee and the quoted market price on the date of

purchase. The Assessing Officer invoked Section 69B of the Act.

These details are mentioned and recorded in the assessment order in

form of a chart, which is as under:-

"

Date Of Number Rate    at Quoted   Amount                   Name           of
purchase of     which     price of                          seller
         shares purchased Delhi

ITA Nos. 20/2000 & 95/2002                                  Page 4 of 28
                                     Stock
                                     Exchange
20.9.87         3500         20/-    20/-     70000/-       Mr. Y. C.
                                                            Vaidya
20.9.87         4500         20/-    20/-         90000/-   Mrs.
                                                            Prasanna
                                                            Vaidya
15.4.88         500          18/50   18/-         9248/30   Mr.
                                                            Gaurang
                                                            Gandhi
15.4.88         200          19/89   18/-         3978/-    Mr. Rajiv
                                                            Dhupar
15.4.88         300          17/57   18/-         5270/95   R. Kumar
                                                            & Co.
8.9.88          30000        12/-    14/-         360000    Ashish
                                                            Vaidya
8.9.88          30000        12/-    14/-         360000    Shyamlee
                                                            Vaidya
8.9.88          143252       12/-    14/-         1719024/- Mr. Y.C.
                                                            Vaidya
8.9.88          80000        12/-    14/-         960000/- Mrs.
                                                            Prasanna
                                                            Vaidya
8.9.88          20000        12/-    14/-         240000/- Y.C.
                                                            Vaidya
                                                            (HUF)
16.12.88        77929        6/02    41/-         469143/- HCL
                                                            Employees
                                                            Investment
                                                            Co. Ltd.

                                                                    "
9.       AIPPL, however, succeeded before the CIT (Appeals), who held

that Section 69B of the Act was not applicable. Revenue preferred an

appeal before the tribunal but did not succeed.

10.      At this stage, we may notice that the tribunal in the case of

ATPPL has not examined the factual aspect but has recorded a finding


ITA Nos. 20/2000 & 95/2002                                  Page 5 of 28
that Section 69B cannot be applied as the Assessing Officer had not

disputed that the actual sale consideration paid as disclosed by the

assessee. In other words, it was not the case of the revenue that the

assessee-ATPPL had paid higher sale consideration than one disclosed

by them. Reliance was placed by the tribunal on the decision of the

Supreme Court in K.P. Varghese versus Income Tax Officer, (1981)

131 ITR 597 (SC).

11.     Facts have been discussed in detail in the case of HEICL. We

may note the facts as found by the tribunal.         U.P. Electronics

Corporation Limited (UPLC), a State Government undertaking, was a

co-promoter of Hindustan Computers Limited alongwith Mircrocomp

Ltd. The principal promoters of Microcomp Limited were S.S. Nadar,

Arjun Malhotra and Y.C. Vaidya. At the time of incorporation of

Hindustan Computers Limited, UPLC owned 4000 shares of Rs.100/-

in Hindustan Computers Limited and the balance 36,000 shares of

Rs.100/- each were owned/held by Microcomp Limited/principal

promoters. Later on, Hindustan Computers Limited merged with three

other companies namely, Hindustan Reprographics Ltd, Indian

Computer Software Co. Ltd and Hindustan Instruments Ltd. to form a

new company HCL Limited.         UPLC, however, did not want to

continue as a shareholder in the new company, HCL Limited.                A

tripartite agreement dated 29th January, 1987 was entered into between

ITA Nos. 20/2000 & 95/2002                                 Page 6 of 28
UPLC, Microcomp Limited and Hindustan Computers Limited to the

effect that UPLC shall sell 4,000 shares of Rs.100/ each to Microcomp

Limited or their nominee for consideration of Rs.1.27 crores.




12.     Subsequently and as per the tripartite agreement, SBI Capital

Markets Limited paid Rs.1.27 crores to UPLC on or before 31st

December, 1987. It appears that Microcomp Limited did not have

sufficient funds to make the said payment and they entered into an

agreement dated 28th February, 1987 with SBI Capital Markets Limited

for payment of the said amount to UPLC.           This agreement was

between SBI Capital Markets Limited, Hindustan Computers Limited

and the three principal promoters. 4,000 shares were transferred and

registered in the name of SBI Capital Markets Limited.

13.     In the meanwhile, Directors of HCL Limited, who were also

Directors in Microcomp Limited, negotiated with Citi Bank to take

over the loan granted by SBI Capital Markets Limited. Citi Bank made

payment of Rs.1.31 crores to SBI Capital Markets Limited and

discharged their dues/claims. SBI Capital Markets Limited, who were

the registered shareholders, in turn executed blank transfer deeds of the

shares of HCL Limited and gave the blank deeds and shares to Citi

Bank.

14.     We note that the originally allotted 4,000 shares of Hindustan

Computers Limited pursuant to the scheme of merger/amalgamation

ITA Nos. 20/2000 & 95/2002                                    Page 7 of 28
had increased to 12,70,000 shares of Rs.10/- each in HCL Limited.

15.     HEICL claim that they acted as trustees pursuant to the oral trust

and have sold these 12,70,000 shares on different dates to employees

of HCL and others as per details given below:

"

S     NAME             Share   Rate Consider Date        Mar     Value   Differen
L.                     Acce    Rup           of          ket             ce
N                      pted    ees  ation    accept      Rate    as per between
O.                                           ance        as on           value as
                                             of          date    Market per mkt
                                             offer       of              rate and
                                                         contr   Rate    actual
                                                         act             consider
                                                                         ation
                                                                         recd.
                                                                         vide
                                                                         cheque/
                                                                         draft
1     MR.    S. 6000           12.0   72000.0   Sep-88 14.0      84000.0 12000.0
      MIRTUNJA                 0                       0         0       0
      YAN                             0

2     MR.      A.K. 2500       12.0   30000.0   1.11.8   24.0    60000.0     30000.0
      DEY                      0                8        0       0           0
                                      0

3     MR.      M.K. 2500       12.0   30000.0   Sep-88 14.0      35000.0     5000.00
      DEB                      0                       0         0
                                      0

4     MR.    J. 2500           12.0   30000.0   Sep-88 14.0      35000.0     5000.00
      VAIDYAN                  0                       0         0
      ATHAN                           0

5     MR.  P.K. 2500           12.0   30000.0   Sep-88 14.0      35000.0     5000.00
      BHALLA                   0                       0         0
                                      0

6     MR.    T.V.      2000    12.0   240000.   Sep-88 14.0      280000.     40000.0
      HOLEY            0       0      00               0         00          0
7     PROF.            1000    12.0   120000.   Sep-88 14.0      140000.     20000.0
      M.D.G.           0       0      00               0         00          0
      KORETH

ITA Nos. 20/2000 & 95/2002                                               Page 8 of 28
8    MR.     RAJ       2500   12.0   30000.0   19.9.8 15.0     37500.0   7500.00
     SIROHI                   0      0         8      0        0
9    MR.               5000   12.0   60000.0   Sep-88 14.0     70000.0   10000.0
     YUVRAJ                   0      0                0        0         0
     BAHADUR
10   MR.       A.      5000   12.0   60000.0   29.8.8   14.0   70000.0   10000.0
     MOHAN                    0      0         6        0      0         0
     RAO
11   MR.     S.V.      2500   12.0   30000.0   Aug-     14.0   35000.0   5000.00
     SRIRAM                   0      0         88       0      0
12   MR.     C.R.      2500   12.0   30000.0   13.5.8   12.0   30000.0   0.00
     SITARAMA                 0      0         8        0      0
     N
13   MR. ARUN          5000   12.0   60000.0   12.07.   14.0   70000.0   10000.0
     DANG                     0      0         88       0      0         0
14   COL. P.S.         2500   12.0   30000.0   31.10.   24.0   60000.0   30000.0
     PENTAL                   0      0         88       0      0         0
15   MR.       N.      2500   12.0   30000.0   Oct-88   18.5   46250.0   16250.0
     RAMDAS                   0      0                  0      0         0
16   MR.               2000   10.0   200000.   4.5.88   12.0   240000.   40000.0
     ASHOK             0      0      00                 0      00        0
     SYAL
17   MR.     P.N.      5000   12.0   60000.0   Aug-     14.0   70000.0   10000.0
     JAIN                     0      0         88       0      0         0
18   MR.               2500   12.0   30000.0   Oct.88   18.5   46250.0   16250.0
     ASHOK                    0      0                  0      0         0
     MALHOTR
     A
19   Mr.     S.K.      2500   12.0   30000.0   28.11. 42.0     105000.   75000.0
     Khanna                   0      0         88     0        00        00
20   Mr.     T.S.      7500   12.0   90000.0   Oct-88 18.5     138750.   48750.0
     Purushotham              0      0                0        00        0
     an
21   Mr.     Hari      1000   12.0   12000.0   7.11.8 31.0     31000.0   19000.0
     Bhaskaran                0      0         8      0        0         0
22   Mr.     B.S.      7500   12.0   90000.0   Sep-88 14.0     105000.   15000.0
     Chandramurt              0      0                0        00        0
     hy
23   Mr.    A.K.       2500   12.0   30000.0   Sep-88 14.0     35000.0   5000.00
     Jain                     0      0                0        0
24   WG. CDR           5000   12.0   60000.0   Sep-88 14.0     70000.0   10000.0
     A.K. Verma               0      0                0        0         0
25   Mr.    Ravi       5000   12.0   60000.0   Oct-88 18.5     92500.0   32500.0
     Thambooche               0      0                0        0         0
     tty
26   Mr.     P.K.      2000   12.0   240000.   Sep-88 14.0     280000.   40000.0
     Asija             0      0      00               0        00        0
27   Mr.     R.P.      2500   12.0   30000.0   Sept-  14.0     35000.0   5000.00
     Singh                    0      0         88     0        0

ITA Nos. 20/2000 & 95/2002                                          Page 9 of 28
28   Mr. Brijesh       2500   12.0   30000.0   17.11. 35.0    87500.0   57500.0
     Khanna                   0      0         88     0       0         0
29   Mr.     M.N.      5000   12.0   60000.0   Sep-88 14.0    70000.0   10000.0
     Diwaker                  0      0                0       0         0
30   Mr. Yogesh        2500   12.0   30000.0   Sep-88 14.0    35000.0   5000.00
     Dayal                    0      0                0       0
31   Mr.     N.N.      5000   12.0   60000.0   Oct-88 18.5    92500.0   32500.0
     Khurana                  0      0                0       0         0
32   Mr. Sugata        2500   12.0   30000.0   Oct-88 18.5    46250.0   16250.0
     Mitra                    0      0                0       0         0
33   Mr.     A.R.      2500   12.0   30000.0   13.10. 18.5    46250.0   16250.0
.    Subramania               0      0         88     0       0         0
     m
34   Mr. Ashok         2000   12.0   240000.   Sep-88 14.0    280000.   40000.0
.    Jain              0      0      00               0       00        0
35   Mr.      J.K.     5000   12.0   60000.0   Sept-  14.0    70000.0   10000.0
.    Talajia                  0      0         88     0       00        0
36   Mr.      C.R.     2500   12.0   30000.0   3.11.8 26.5    66250.0   36250.0
.    Ramesh                   0      00        8      0       0         0
37   Mr.     N.K.      1000   12.0   120000.   Oct-88 18.5    185000.   65000.0
.    Bhatia            0      0      00               0       00        0
38   Mr.     M.N.      7500   12.0   90000.0   Oct-88 18.5    138750.   48750.0
.    Shah                     0      0                0       00        0
39   Mr.      P.R.     2500   12.0   30000.0   Oct-88 18.5    46250.0   16250.0
.    Parasher                 0      0                0       0         0
40   Mr.      L.N.     2500   12.0   30000.0   Sep-88 14.0    35000.0   5000.00
.    Vishwanatha              0      0                0       0
     n
41   Mr. Rajinder      2500   12.0   30000.0   Sep-88 14.0    35000.0   5000.00
.    Kumar                    0      0                0       0
42   Mr.     M.S.      2500   12.0   30000.0   Sep-88 14.0    35000.0   5000.00
.    Mohod                    0      0                0       0
43   Mr.        S.     2500   12.0   30000.0   Aug-   14.0    35000.0   5000.00
.    Ramaswamy                0      0         88     0       0
44   Mr.     H.N.      5000   12.0   60000.0   Aug-   14.0    70000.0   10000.0
.    Shanker                  0      0         88     0       0         0
45   Mr.        R.     2500   12.0   30000.0   Sept-  14.0    35000.0   5000.00
.    Vaidyanatha              0      0         88     0       0
     n
46   Mr. J. Vijay      5000   12.0   60000.0   Sept-   14.0   70000.0   10000.0
.                             0      0         88      0      0         0
47   Mr.       N.      2500   12.0   30000.0   Sept-   14.0   35000.0   5000.00
.    Gunaseelan               0      0         88      0      0
48   Mr.       M.      2000   10.0   200000.   Aug-    14.0   280000.   80000.0
.    Raghunanda        0      0      00        88      0      00        0
     n
49   Mr. Prasant       2500   12.0   30000.0   16.11. 40.0    100000.   70000.0
.    Chatterji                0      0         88     0       00        0
50   Mr.    M.M.       2000   14.0   28000.0   Oct-88 18.5    37000.0   9000.00

ITA Nos. 20/2000 & 95/2002                                         Page 10 of 28
.     Khanna                  0      0                0       0
51    Mr.    V.N. 2000        14.0   28000.0   Sep-88 14.0    28000.0   0.00
.     Kaura                   0      0                0       0
52    Mr.     Sat 1000        14.0   14000.0   Sep-88 14.0    14000.0   0.00
.     Saraf                   0      0                0       0
53    CIFCO       2000        18.9   3782500   Sep-88 14.0    280000    -
.                 00          1      .00              0       0.00      982500.
                                                                        00
54    Mr.      P.S.    1000   10.0   100000.   Sep-88 14.0    140000    400000.
.     Vishwanatha      00     0      00               0       0.00      00
      n
55    Mr.     T.C.     1000   12.0   120000.   Sep-88 14.0    140000    200000.
.     Prabhu           00     0      00               0       0.00      00
56    Mr. S. S.        1558   6.02   938284.   Sep-88 14.0    218199    124371
.     Nadar            57            00               0       8.00      4.00
57    Mr. Arjun        1558   6.02   938284.   Sep-88 14.0    218199    124371
.     Malhotra         57            00               0       8.00      4.00
58    Mr.     Y.C.     7792   6.02   469143    Sep-88 14.0    109100    621863.
.     Vaidya           9                              0       6.00      00
59    Mr.     D.S.     3896   6.02   234572.   Sep-88 14.0    545496.   310924.
.     Puri             4             00               0       00        00
60    Mr.        S.    5000   14.0   700000.   Sep-88 14.0    700000.   0.00
.     Bhattacharya     0      0      00               0       00
61    Mr. Subhash      7792   6.02   469143.   Sep-88 14.0    109100    621863.
.     Arora            9             00               0       6.00      00
62    Mr.     Ajai     3896   6.02   234572.   Sep-88 14.0    545496.   310924.
.     Choudhary        4             00               0       00        00
                       1270          1319049                  182460    505550
                       000           8                        00.00     2.00


16.     The aforesaid chart also mentions the market value of the share

on the date, what the HEICL calls/states was the date of acceptance of

offer. This date of acceptance was not the date on which payment was

received from the buyer by HEICL. The Assessing Officer has taken

into consideration the date on which payment was received by HEICL

as the relevant date and accordingly had made addition of

Rs.2,39,86,572/-.

17.     Sale       consideration     collected/received      by   HEICL        of


ITA Nos. 20/2000 & 95/2002                                         Page 11 of 28
Rs.1,31,90,498/- on the sale of shares, it was stated was paid to Citi

Bank towards payment of the loan granted by them and their dues were

satisfied. HEICL claims that they only received trusteeship fee of

Rs.43,600/- for entering into these transactions. HEICL was neither

the shareholder nor had any other interest in the shares. Their role was

to solely sell the shares as trustees to the employees of HCL Limited,

in accordance with the directions of the settlers, i.e., the principal

promoters of Hindustan Computers Limited.

18.     The Assessing Officer in the assessment order has held as

under:-

      1.         HEICL           had   purchased   12,70,000   shares       for

      Rs.1,31,46,898/- and sold them for Rs.1,31,90,498/-.


      2.         HEICL had sold 77,927/- shares to ATPPL @ Rs.6.02/-

      per share as against the market price of Rs.41/- per share as per

      data of the stock exchange.


      3.         The so-called oral trust in favour of HEICL was an

      afterthought for the following reasons:-


                 (i)         Promoter directors of HEICL, Y.C. Vaidya, S.S.
                 Nadar and Arjun Malhotra had resigned as directors of
                 HEICL and had become directors of ATPPL, to whom the
                 shares were sold.


ITA Nos. 20/2000 & 95/2002                                       Page 12 of 28
                 (ii)        Ashim Kanth, attorney of Y.C. Vaidya and director
                             of ATPPL on oath was unable to state why shares
                             were sold at less than the market price.

                 (iii)       The shares were sold to ATPPL on the directions of
                             promoter directors of HEICL for their personal
                             gains at prices much below the market price.

                 (iv)        Dues of Citi Bank were liquidated by HEICL
                             through payments from their bank account on
                             different occasions.      HEICL had deliberately
                             delayed filing of return for the assessment year in
                             question till 26th March, 1991, though their
                             accounts were purportedly audited in May, 1989.
                             They also delayed furnishing of information and
                             asked for repeated adjournments. Their books were
                             finally impounded by the Assessing Officer, Circle-
                             1(ii).

                 (v)         As shares were sold at less than the market price,
                             this constitutes breach of trusteeship and also
                             results in violation of the provisions of the
                             Companies Act, 1956 as the transactions could have
                             been entered into only for the benefit of the
                             employees and not for the benefits of the promoter
                             directors.

4.      The Assessing Officer worked out the market price of the shares

in the stock exchange as on 1st August, 1988, 6th December, 1988, 8th




ITA Nos. 20/2000 & 95/2002                                              Page 13 of 28
December, 1988 and 16th December, 1988 and accordingly held as

under:-




                        "
                             S.No. No of shares   Date     of Rate of Total
                                   sold           Sale        Sale    Amount
                             01    7500           1.8.88      14.00   105000
                             02    254500         6.12.88     18.91   4812595
                             03    412500         8.12.88     18.91   7800375
                             04    595500         16.12.88    41.00   24415500
                                   1270000
                             37133470

                             The assessee has purchased these shares for a total
                             consideration of Rs.1,31,46,898/-. The difference
                             of the sale price and purchase price as discussed
                             above is treated as assessees income"

           Thus, addition of Rs.2,39,86,572/- was made.

19.     Commissioner (Appeals) while affirming the said order has

noted additional facts. Employees of HEICL had not purchased the

shares and the promoter directors had decided and allotted the shares

to persons of their choice.               The shares had to be allotted to

employees of HCL Ltd. by 31st March, 1987, but no attempts were

made till April, 1988, when for the first time S.S. Nadar wrote

letters.     Letters written to purported employees by S.S. Nadar did

not have dates and number of shares offered to the said persons had

not been disclosed. S.S. Nadar and Arjun Malhotra were allotted

1,55,857 shares each but the other promoter director Y.C. Vaidya


ITA Nos. 20/2000 & 95/2002                                           Page 14 of 28
was allotted 77,929 shares.       Two other persons were allotted

1,00,000 shares each. 50,000 and 38,964 shares allotted to two

others. There was inconsistency in the sale price. S.S. Nadar, Arjun

Malhotra, Y.C. Vaidya and one D.S. Puri were allotted shares @

Rs.6.02 per share, whereas another person Vishwanath was allotted

shares at Rs.10/- per share, T.C Prabhu was allotted shares at Rs.12/-

per share and S. Bhattacharya was allotted shares at Rs.14/- per

share. 2,00,000 shares were sold to CIFCO on the same date at

Rs.18.9/- per share.

20.     Commissioner (Appeals) held that the substance and not form

which was relevant and applying the test of human probabilities, the

tax authorities were entitled to look at the surrounding

circumstances and find out the reality. Addition of Rs.2,39,86,572/-

was correctly made by the Assessing Officer and the addition was

upheld in entirety.

21.     Tribunal in the impugned order has held that HEICL was

incorporated as a ,,trustee to sell or distribute the shares of HCL

Ltd. which was earlier held by the principal promoters of

Microcomp Ltd., to the employees of HCL Ltd. as per

directions/instructions of the principal promoters of Microcomp Ltd.

HEICL never acquired title or ownership of the shares. This was

accepted and admitted by the Departmental Representative, who

ITA Nos. 20/2000 & 95/2002                                   Page 15 of 28
accepted the said legal position but had argued that HEICL was the

best person in whose hands addition could be sustained. This, as per

the tribunal, cannot be a ground to justify addition by treating the

difference between the market price and sale price as taxable income

in the hands of HEICL. The transaction was not sham and the

consideration mentioned was the actual sale consideration received

and to that extent there was no dispute. Revenue had not pleaded or

argued that any consideration over and above the declared

consideration was received by HEICL.        HEICL could not have

acquired ownership title as no payment was made by them from

their own resources or by way of raising loan. As title of the shares

never vested with HEICL, they were mere custodian of the shares,

who had to distribute the shares. The shares were not registered in

the name of HEICL. The principal promoters had paid fee of 3.5%

to SBI Capital Markets Limted. HCL Ltd. had raised a loan from

Citi Bank against pledge of shares and on the basis of the guarantee,

loan was granted. Interest on loan was debited to HCL Ltd.

22.     We have considered the contentions of the Revenue in this

appeal. In spite of certain gaps and doubts/suspicion, we do not

think that there are sustainable reasons or grounds to hold that the

impugned order passed by the tribunal in the case of HEICL is

perverse and contrary to evidence on record.           The primary

ITA Nos. 20/2000 & 95/2002                                   Page 16 of 28
contention of the Revenue is that the so-called oral trust, under

which the shares were sold, is sham. HEICL could not have sold or

transferred the shares. The fact is that the shares were sold and

transferred and HEICL had acted as a ,,trustee.              The said

transfers/sales were made between the period 1 st August, 1988 to

16th December, 1988. The sales were made as many as to 62 parties

as per the details mentioned in paragraph 15 above. The sales were

duly recorded and there is no allegation that money or under table

consideration was paid. There is no such finding by the Assessing

Officer and the tribunal has categorically stated that there is no

evidence or material to the said effect.

23.     In fact there is contradiction between the contention and the

argument of the Revenue. If we accept the contention that HEICL

did not have any right to sell the shares or deal with them, then it is

obvious that no addition or income can be made in their hands.

They were not the beneficiaries.           Further, once consideration

received is accepted as the actual amount paid, there cannot be any

notional addition to the income of HEICL on the ground that they

could have and should have received the market price. It is obvious

that the shares were not transferred and sold for commercial

considerations but at the behest and at the interest of the promoter

directors of Hindustan Computers Limited as well as Microcomp

ITA Nos. 20/2000 & 95/2002                                    Page 17 of 28
Ltd. But there is no provision or mandate in law, under which

concession or difference can be taxed as deemed or notional income

in the hands of HEICL.




24.     HEICL, which was incorporated on 29th December, 1987 as

per the memorandum, had the following main objects:-

                 "To subscribe to or purchase as trustee shares,
                 debentures, stocks, bonds and other securities
                 or to act as a trustee of or for shares,
                 debentures, stocks, bonds and other securities
                 to be held by or for the benefit of any person or
                 class of persons or to be held by or for the
                 benefit of employees of any company including
                 any directors holding a salaried office or
                 employment in any company."


25.     Learned counsel for the respondent-assessee has also rightly

drawn our attention to the tripartite agreement dated 28th February,

1987 between SBI Capital Markets Limited and the principal

promoters and Hindustan Computers Limited in which it was

stipulated as under:-

                 "(12) One of the conditions on which SBICAP
                 agreed to purchase the said shares from UPLC
                 at the request of the Principal Promoters is that
                 the Principal Promoters shall arrange that the
                 said shares of the Company or the shares of
                 HCLL allotted to SBICAP on amalgamation in
                 lieu thereof would be transferred to the said
                 employees on payment of Rs.1,27,00,000/- on
                 or before 31st December, 1987.

                 XXXXX


ITA Nos. 20/2000 & 95/2002                                           Page 18 of 28
                 SBICAP shall acquire the said shares of the
                 Company for the purpose of ultimately
                 transferring the same or the Shares of HCLL an
                 allotted in lieu thereof (as the case may be) to
                 the employees of HCLL or the Company as
                 hereinafter provided on receipt inter alia of the
                 sum of Rs.1,27,00,000/- (Rupees one crore
                 Twenty Seven Lakhs only) for such transfer.

                 XXXXX

                 (c)    That on SBICAP holding HCLL shares
                 the employees of HCLL shall purchase the
                 shares held by SBICAP at or for the price of
                 Rs.1,27,00,000/- plus carrying cost on or before
                 the 31st December, 1987;

                 (d) That if the said Scheme (with or without
                 modifications) is not sanctioned, then the
                 employees of the Company shall purchase the
                 shares held by SBICAP of the Company at or
                 for the price of Rs.1,27,00,000/- plus carrying
                 cost;

                 XXXXX

                   In consideration of SBICAP agreeing to enter
                 into this arrangement and acquiring the shares
                 of the aggregate value of Rs.1,27,00,000/- the
                 Principal Promoters jointly and severally shall
                 immediately on the execution of these presents
                 pay to SBICAP a fee calculated at the rate of
                 3.5% of the purchase price of Rs.1,27,00,000/-.

                 6.     In addition to the fee mentioned in
                 Clause 5 above, the Principal Promoters shall
                 jointly and severally pay to SBICAP a gross
                 carrying cost of 18% per annum from the date
                 hereof upto the date of realisation by SBICAP
                 of the sum of Rs.1,27,00,000/- (Rupees one
                 crore and twenty seven lakhs) payable by the
                 said employees or the proposed trust as
                 hereinafter mentioned as the case may be. The

ITA Nos. 20/2000 & 95/2002                                           Page 19 of 28
                 said amount of carrying cost shall be reduced
                 by the gross dividend that may be declared by
                 either the Company or HCLL and paid to
                 SBICAP on or before 31st December, 1987.
                 The said sum shall be paid prior to the
                 execution by SBICAP of the relevant Transfer
                 Forms.

                 7.    The Principal Promoters as the
                 Promoters and Directors of HCLL guarantee to
                 exchange and/or issue 12,70,000 Shares
                 equivalent to 4000 equity Shares of the
                 Company of SBICAP immediately on the
                 Company, HRL, HIL and ICSCL or the
                 Company alone shall merge with HCLL.

                 8.     The     Principal   Promoters       hereby
                 guarantee that the said Shares or the Shares of
                 HCLL (as the case may be) shall be purchased
                 by the said employees through the Principal
                 Promoters on or before 31st December, 1987,
                 time being of essence. If the same are not
                 purchased by the employees represented by the
                 Principal Promoters, the Principal Promoters
                 guarantee to acquire the said Shares at or for
                 the price of Rs.1,27,00,000/- in trust for and on
                 behalf of and for the benefit of the employees
                 of the Company or of HCLL as the case may
                 be. SBICAP shall execute the Transfer Forms
                 on receipt of the said sum of ­Rs.1,27,00,000/-
                 and other amounts as mentioned herein.

                 9.     If the principal promoters fail to arrange
                 for purchase of the Shares as mentioned in
                 Clause 8 hereof on or before 31st December,
                 1987, as provided herein, it shall be at the
                 option of SBICAP after giving one month's
                 grace period to the Principal Promoters to sell
                 the Shares at such price and to such persons or
                 body corporate and/or to deal with the Shares in
                 such manner as SBICAP in its sole discretion
                 shall deem fit."


ITA Nos. 20/2000 & 95/2002                                           Page 20 of 28
26.      The agreement with Citi Bank has not been placed on record

and it appears was also not filed before the tribunal. The clauses

therein are not known. The Assessing Officer also did not call for

the said agreement and the same is not referred to in the assessment

order.     The date on which payment was made to SBI Capital

Markets Limited is not indicated or stated in the Tribunals order

and is not on record.

27.      It is an undisputed position that the processing fee of 3.5%

paid to SBI Capital Markets Limited was paid by principal

promoters. The interest paid to Citi Bank was paid by HCL Limited

but the quantum thereof has not been indicated or mentioned in the

order of the tribunal.

28.      It was stated before us that shares of HCL Ltd. were listed in

the stock exchange on 18th July, 1987 and it is apparent that share

prices of HCL Ltd. had jumped or escalated between September and

December, 1988. HCL Ltd. had declared dividend, it appears, in the

Annual General Meeting held in November/December, 1988, but the

details are not available and have not been ascertained by the

Assessing Officer, Commissioner (Appeals) or were put to and

agitated before the tribunal by the departmental representative.

Relevance of these details was not argued even before us. Similarly,

Y.C. Vaidya it has come on record was a non-resident living in the

ITA Nos. 20/2000 & 95/2002                                    Page 21 of 28
United States. However, relevancy of these facts is not highlighted

or stated. If there was something more than what was stated or was

appearing on record, further investigation and inquiries were

required on the said aspect, but these have not been undertaken and

brought on record. On the aspect of transfer of 77929 shares to Y.C

Vaidya or ATPPL however, there are enquiries and this aspect is

being examined separately below while dealing with the case of

ATPPL.

29.     What is clearly discernible from the facts stated above is that

the Revenue started inquiries but were not able to cut through and

ascertain affirmatively and conclusively whether there was any

clandestine objective and purpose in the entire transaction, whether

there was any motive or intention to evade or even avoid payment of

taxes, who was the actual beneficiary; the acquirers to whom the

shares were sold, Microcomp Ltd. or the promoter company of

Hindustan Computers Ltd. who had entered into an agreement with

U.P. Electronics Cooperation Ltd. etc. In fact, there are several

questions which remain unanswered and do raise needle of

suspicion; that there could be possibly an element to avoid or even

evade payment of tax or to lower the quantum of taxation etc.

Possibly the scheme or the plan could be to avoid legal and technical

problems as HCL Ltd. could not have acquired and dealt with the its

ITA Nos. 20/2000 & 95/2002                                    Page 22 of 28
own shares or could not have ensured purchase of shares at a

cheaper price by their promoter directors or the directors/officer in-

charge of the said company. Possibly, a case of deemed dividend in

the hands of the acquirers, who had procured shares at Rs.6.02/- per

share instead of market value of Rs.41 per share.          From the

documents placed on record, it is evident that query with regard to

gift was raised by the Assessing Officer but he did not dwell and go

into the said aspect. (See reply dated 16th March, 1995 from R.

Kumar Jain and Associates Chartered Accountants to the Assessing

Officer). Yet there is another possibility that the HCL Ltd. had

decided to declare dividend and the same had to be paid to the

registered shareholders on the date of the closure of accounts and

SBI Capital Markets Limited was the registered owner. The book

transaction with regard to sale of shares in favour of ATPPL may

have been backdated to avoid legal complications and to ensure that

the dividend is paid and received by the said company. As Y.C.

Vaidya was a non-resident Indian there may have been prohibition

or requirement to obtain permissions etc. under the exchange

regulations or the requirement that the payment should be made in

convertible foreign currency.       These aspects have remained

unenquired for reasons best know to the Revenue but it would not be

correct and proper to remand the case to the Assessing Officer stage.

ITA Nos. 20/2000 & 95/2002                                   Page 23 of 28
The matters pertains to the assessment year 1989-90 and it was an

obligation and duty of the Assessing Officer as an investigator to go

deep and thoroughly.

30.     At this stage on mere suspicion, the matter cannot be remitted

to the Assessing Officer to conduct fresh inquiry without there being

any     concrete       foundation   justifying   and   asserting   a    firm

apprehension. Even before us during the course of hearing, the

standing counsel for the Revenue did not press or make any

headway.          The suspicions raised remained in the realm of

conjectures and surmises and do not have a firm basis. Revenue

should have ensured that investigations were conducted and

undertaken at the initial stage in detailed and proper manner. They

should not expect order of remand on mere suspicion without any

foundation or basis for the lapses on the part of the Assessing

officer, unless there is fraud, collusion or relevant facts have come

to the knowledge of the Revenue subsequently.

31.     We would also like to refer to statement of S. Shankar. He

had stated that HEICL had purchased 12,70,000 shares of HCL Ltd.

in January, 1988 from SBI Capital Markets Ltd., but he could not

remember the exact date. He had stated that mode of payment was

cheque and funds were arranged by way of pledge loan from Citi

Bank.      The said statement is factually incorrect and this is not the

ITA Nos. 20/2000 & 95/2002                                         Page 24 of 28
stand of the Revenue before us or in the assessment order. This

contention and our attention was not drawn to the said assertion

during arguments. This portion of the statement was not highlighted

and relied upon by the Revenue before the tribunal. Certainly Citi

Bank had granted loan to pay dues of SBI Capital Markets Ltd. S.

Shankar perhaps was not fully aware of the facts as he did not know

how the loan was repaid to Citi Bank and could not also tell why the

transfer of shares was not registered in the name of HEICL and the

shares had continued to be in the name of SBI Capital Markets Ltd.

32.     This brings us to the appeal in the case of ATPPL. The entire

reasoning given by the tribunal to dismiss the appeal of the Revenue

is as under:-

                    "11.       We       have     heard     rival
                    submissions, perused the record, gone
                    through the orders of authorities below.
                    We have gone through the documentary
                    evidence to which our attention was drawn.
                    We have also looked into the case law as
                    cited by the rival parties. The admitted
                    position of fact that 77,929 shares of HCL
                    Ltd. were purchased by the assessee
                    company @ Rs.6.02 per share and seller
                    company M/s. HCL Employees Investment
                    Co. Ltd. has admitted to have sold these
                    shares at the said price to the assessee
                    company and the AO has not been able to
                    establish that anything more than what has
                    been admitted to have been paid and
                    received has passed hands in order to
                    invoke provisions of section 69-B. As
                    nothing has been proved to show that any

ITA Nos. 20/2000 & 95/2002                                         Page 25 of 28
                    other amount than admitted has been paid
                    by the assessee in order to buy 77929
                    shares of HCL Ltd. therefore, in view of
                    facts and circumstances, we are of the view
                    that CIT(A) was justified in deleting the
                    addition while applying the ratio of
                    judgment in the case of K.P. Varghese as
                    referred to supra. While confirming the
                    order of CIT (A) we dismiss the appeal of
                    the revenue. As a result, appeal of the
                    revenue gets dismissed."

33.         We have noted above that 77,929 shares were allotted to Y.C.

Vaidya. These shares have been registered in the name of ATPPL but

without giving full details and particulars on how, the shares were

transferred by Y.C. Vaidya to the said company ATPPL.                      The

respondent-assessee in their letter dated 25th March, 1992 had stated

that these shares were transferred in the records of HCL Ltd. in the

name of ATPPL on 16th November, 1988 and they had also received

dividend declared in the Annual General Meeting of HCL held in

December, 1988, but they had recorded purchase of these shares in

their books on 28th February, 1989 but had received telephonic

information about registration of shares from HCL Ltd. on 24 th March,

1992. Sale consideration of these shares was paid on 9th March, 1989

by way of cheque of Rs.4,69,143/- by ATPPL.

34.         Ashim Kanth, attorney of Y.C. Vaidya could not answer

several questions put to him in his statement recorded under Section

131 of the Act on the ground that only directors were aware about the

ITA Nos. 20/2000 & 95/2002                                        Page 26 of 28
relevant information/facts and could answer.         S.Shankar, principal

officer and director of HEICL in his statement recorded on 24th March,

1992 had stated that 77,929 shares were transferred to ATPPL on 16 th

December, 1988 and they had received the consideration of

Rs.4,67,574/- by way of cheque but he was not sure as to the date on

which the payment was received.

35.         To this limited extent, we remit the matter to the tribunal for

fresh adjudication in the two appeals as facts in this regard are not clear

and certainly have not been examined and gone into by the tribunal.

36.     In view of what is being noted above, we have remanded the

transaction relating to Associated Techno Plastics (P) Ltd. to the

tribunal.      To the extent permissible and proper, the tribunal can

examine the said question provided that the facts and materials are on

record.

37.     In view of the aforesaid findings, the substantial question of law

mentioned above in ITA No. 95/2002 has to be treated as partly

answered in favour of the Revenue and against the respondent insofar

as transfer of 77929 shares by HEICL to V.C. Vaidya or ATPPL is

concerned, on which we have passed an order of remit to the tribunal.

However, on other aspects/transactions of HEICL, the appeal is

dismissed and the question of law is answered in favour of the

respondent-assessee and against the appellant-Revenue.

ITA Nos. 20/2000 & 95/2002                                      Page 27 of 28
38.     In view of the aforesaid findings in ITA No. 95/2002, the

question of law mentioned in ITA No. 20/2000 has to be treated as

answered in favour of the appellant-Revenue and against the

respondent-assessee, but with an order of remit to the tribunal for fresh

decision. The tribunal will examine the issues/facts afresh without

being influenced by the earlier order but while keeping in mind the

observations made above. In the facts of the present case, there will be

no order as to costs.




                                         (SANJIV KHANNA)
                                             JUDGE



                                       (SANJEEV SACHDEVA)
                                             JUDGE
November 21st, 2013
VKR/NA




ITA Nos. 20/2000 & 95/2002                                    Page 28 of 28

 
 
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